Buying Apartment for Rental

[dodo]

20 year old looking to invest 50K ,buying 1 bed apartment an option , currently earns 25K
can deduct house insurance, any other stuff, but just trying to keep simple,
Is there any new incentives Government have brought out in last budget that I am missing.

Would you think this is good options, Investing 50K in 5 yr fixed might after tax earn 3.5K


Apartment cost 210K
Mortgage 160K Fixed 25 Yrs 3.8%

Proposed Calculation

Monthly in/out Yearly
Rental €1600 *12 = €19200
Mortgage €820 *12 = €9840
Profit €9,360
Allowable Deductions
Man Fees €125 * 12= €1500
Mortgage interest €3,500

Pre Tax Net Profit €3360
Tax,PRSI,USC 30% €1008

Profit €2352

 

[Premos]

20 year old looking to invest 50K ,buying 1 bed apartment an option , currently earns 25K
can deduct house insurance, any other stuff, but just trying to keep simple,
Is there any new incentives Government have brought out in last budget that I am missing.

Would you think this is good options, Investing 50K in 5 yr fixed might after tax earn 3.5K


Apartment cost 210K
Mortgage 160K Fixed 25 Yrs 3.8%

Proposed Calculation

Monthly in/out Yearly
Rental €1600 *12 = €19200
Mortgage €820 *12 = €9840
Profit €9,360
Allowable Deductions
Man Fees €125 * 12= €1500
Mortgage interest €3,500

Pre Tax Net Profit €3360
Tax,PRSI,USC 30% €1008

Profit €2352

The income you pay tax on is not 9360 less allowable deductions but 19200 less allowable deductions so on 14200 (based on your basic information). Your mortgage is not deducted, just the interest.
You also forgot quite a few costs: maintenance, furnishing, insurance, lot been a few of these.

 

[fin-noob]

Also factor in 10% of the rent for maintenance, insurance, advertisement fee, PRTB fee (minor), and some more % of unoccupancy (although unlikely in current rental market, but this could still happen for various reasons) as well as the risk of rogue tenants who stops paying rent and won't move out.

Higher risk than depositing in a bank account, hence (slightly) higher returns. Plus property appreciates, hopefully.

 

[DannyBoyD]

Keep saving and buy somewhere to live first.

 

[Steven Barrett]

The income you pay tax on is not 9360 less allowable deductions but 19200 less allowable deductions so on 14200 (based on your basic information). Your mortgage is not deducted, just the interest.
You also forgot quite a few costs: maintenance, furnishing, insurance, lot been a few of these.

The interest is €6,102.

As it's a buy to let, you need a 30% deposit and the interest rate will be higher, the cheapest for a 70% LTV is 5.33%. You also give up your first time buyer status.

Buying a 1-bed unit, at what I'd consider to be the height of the market, and at a time when tax rules don't favour small individual landlords....

Sorry, but I really don't think it's a good idea.

I agree 100%. Of all the accidental landlords that I speak to, the owners of 1 bed apts are the worst. They just haven't recovered in value the same way as bigger apartments. There is a much lower demand for them as there's no really enough room for 2 people in them, just people who live on their own.

 

[_OkGo_]

Would you think this is good options

It's terrible for so many reasons that any lender would not entertain it.

- €25k salary is minimum wage and gives net pay of €1870 a month. That's fine for a 20yr old living at home rent free but not really for anything else.

- A BTL requires 30% deposit and would at least have another €10-15k in costs such as solicitors, stamp duty, furnishings etc. Thats €78k min and you'd really want some buffer too. They need €88k and they have €50k

- BTL rates are 5-7%, not 3.8%. They would also be stress tested +2%

- 150k @ 6% for 25yrs is €960. It's €1160 stressed at 8%. That is 50-60% of their net income so they would not pass any affordability test and one non paying tenant (even for a month or two) or a void between tenancies and they are in financial trouble.

- All of your calculations for profit and tax are wrong. You need to know that stuff before making huge assumptions on purchasing a property.

A 20 year old earning €25k should be focused on increasing their income through education or professional qualifications as well as enjoying themselves. Keep saving steadily and in their late 20's they should have a substantial deposit with a good income to purchase their own property

Buying a 1 bed apartment to rent out shouldn't even enter their mind

 

[dodo]

The income you pay tax on is not 9360 less allowable deductions but 19200 less allowable deductions so on 14200 (based on your basic information). Your mortgage is not deducted, just the interest.
You also forgot quite a few costs: maintenance, furnishing, insurance, lot been a few of these.

my mistake, was not thinking

The interest is €6,102.

As it's a buy to let, you need a 30% deposit and the interest rate will be higher, the cheapest for a 70% LTV is 5.33%. You also give up your first time buyer status.

I agree 100%. Of all the accidental landlords that I speak to, the owners of 1 bed apts are the worst. They just haven't recovered in value the same way as bigger apartments. There is a much lower demand for them as there's no really enough room for 2 people in them, just people who live on their own.

Simple as this , She would be telling bank she will be living there as this country does nothing for our youth so we have to do ourselves, she can get upto deposit needed legal fee etc, and I will go guarantor as lucky enough not to have mortgage and have good salary,
do take point of 1 bed so can actually get 2 bed for 225, I was speaking to someone who has a 2 bed and does the room to rent scheme and only stays in the apartment once a month themselves when in Dublin and gets the full rent of around 11k tax free legally. Tenant also gets great benefit of having place to themselves for 99% of the time. Sad Ireland we live in that we need to come up with this type of stuff to make a some head way. Building bike sheds for 330K is fine though

 

[Premos]

It's 14 k tax free and max rent but it's supposed to be the principal residence. And it's the maximum rent possible, no deduction allowed so it doesn't really change that much financially if you charge 14k but then have to pay the mortgage, the insurance, the furnishing, the maintenance, the utilities that then you are responsible for.

 

[_OkGo_]

do take point of 1 bed so can actually get 2 bed for 225, I was speaking to someone who has a 2 bed and does the room to rent scheme and only stays in the apartment once a month themselves when in Dublin and gets the full rent of around 11k tax free legally.

Not getting caught is not the same as being legal. They should not be claiming the rent a room. Lying on a self assessed tax return and getting away with it does not equate to it being "completely legal"

I will go guarantor

That's not how it works anymore. If you got a joint mortgage, the term will be limited by your age and therefore monthly payments are likely to increase. As it would be a second property for you, you can't pretend it is for you to live in so it will be BTL rates. But more than likely, the lender will see through the pretence and not offer a mortgage

Simple as this , She would be telling bank she will be living there as this country does nothing for our youth so we have to do ourselves

Encouraging your daughter to lie on a legal document (loan offer) and then to subsequently lie on a self assessed tax return could lead to a whole lot of problems for her in the future. Using a strawman argument to justify your means does not make any of it legal

 

[Leo]

the apartment once a month themselves when in Dublin and gets the full rent of around 11k tax free legally.

That is not in any way legal, it's tax evasion.

Sad Ireland we live in that we need to come up with this type of stuff to make a some head way.

It is indeed sad that parents are guiding their children into dishonesty or crime as opposed to bettering their prospects through education and hard work. That said I think you need to take a step back and reconsider the position. A 20 year-old earning €25k with €50k to invest is better off than many of their peers.

 

[Annieindublin]

A 20 year old with 50k earning minimum wage is not too badly off while living at home.
Property isn’t realistic as discussed above

Education to improve their earning? Of course they may already be doing that.

I’d say find an investment product somewhere and let it accumulate for a few years and maybe add to it if they can. Reassess in a few years. There is no rush on them. There’s a lot to be said for being mobile and being able to seek new jobs and opportunities and being tied to a mortgage here might limit them.

My kids at 20 were not so well set up, they were at uni, this is fortunate kid.

 

[Knuttell]

210k for an apartment-

if in Dublin check there's no antisocial behaviour, easy enough to do a quick Internet search.Visit the area on a Saturday evening.

Find out before you do anything if there's any issues with Fire certificate.

Is sinking fund well funded?

Any pyrite concerns - especially out by Balbriggan.

What is management fee? You'd be surprised how large this fee can be.

If you can avoid celtic tiger apartments but beware of fire certs on older developments.

If 210k is not working for you look further afield. You can get a 1 bed in Mullingar for 140s

Your main problem is the inherited rent, if it was previously rented for 500 eur pm then sadly (ridiculously) that's all you can charge.

I have spent at least 2 years looking for an apartment that suits and either had a strong rent or better was owner occupier. These are like hens teeth.

Never had a problem renting out 1 bed apts, not everyone wants a 2 or 3 bed. Sales wise from speaking with EAs (estate agents) these sell no problem.